11. AVOCADO FARM AND
PROCESSING PLANT
11-2
TABLE OF CONTENTS
PAGE
I.
SUMMARY
11-3
II.
FARM & PRODUCT DESCRIPTION
11-3
III.
MARKET STUDY, FARM & PROCESSING PLANT CAPACITY
11-3
A. MARKET STUDY
11-3
B. FARM AND PROCESSING PLANT CAPACITY &
PROGRAMME
IV.
V.
VI.
VII.
11-5
FARM & PROCESSING PLANT MATERIALS, INPUTS
AND UTILITIES
11-6
A. FARM & PROCESSING PLANT MATERIALS & INPUTS
11-6
B. UTILITIES
11-7
FARM OPERATION AND PROCESSING TECHNOLOGY
AND ENGINEERING
11-7
A. FARM OPERATION AND PROCESSING TECHNOLOGY
11-7
B. ENGINEERING
11-9
MANPOWER & TRAINING REQUIREMENT
11-10
A. MANPOWER REQUIREMENT
11-10
B. TRAINING REQUIREMENT
11-11
FINANCIAL ANLYSIS
11-12
A. TOTAL INITIAL INVESTMENT COST
11-12
B. FARM OPERATION AND PROCESSING COST
11-13
C. FINANCIAL EVALUATION
11-13
D. ECONOMIC BENEFITS
11-14
11-3
I.
SUMMARY
This profile envisages the establishment of Avocado farm 8 processing plant with a farm
capacity of 1,500 tonnes per annum and a processing capacity of 150 tonnes per annum.
The present demand for processed avocado is estimated at 4,552 tonnes per annum. The
demand is expected to reach at 8,641 tonnes by the year 2015.
The farm & plant will create employment opportunities for 19 persons.
The total investment requirement is estimated at Birr 6.71 million, out of which Birr 4.4
million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 13% and a net
present value (NPV) of Birr 2.29 million, discounted at 8.5 %.
II.
FARM & PRODUCT DESCRIPTION
Avocado is a staple food and native to tropical America and extend to far Asia, Cuba,
etc. It has a high nutritional value, rich in fats and proteins.
Avocado has twice as much energy value as in bananas. In addition, vitamins A,B,C and
E are also found in it. The fresh smooth buttery pulp is eaten and it is the most nutritious
of all fruits. It is usually served as half fruits with lemon juice, vinegar, salt and pepper. It
is used in salads. The pulp, which may be preserved by freezing, is used as a sandwich
filling or spread and in ice creams and milk shakes. Avocado oil is used in cosmetic.
III.
MARKET STUDY, FARM AND PROCESSING PLANT CAPACITY
A.
MARKET STUDY
1.
Past Supply and Present Demand
The demand for avocado in the country is mainly met through local production. The
country also exports fresh avocado mainly to Djibouti and Yemen. However, the annual
average quantity exported to these countries in the past five years does not exceed one
tonne.
On the other hand, the country imports a variety of canned fruits from abroad.
Nevertheless, the quantity of canned avocado imported to the country could not be known
due to problem of data aggregation.
In order to estimate the supply and demand for avocado, the report on the 1999/2000
Houshold Income, Consumption and Expenditure Survey conducted by CSA and
11-4
published in February 2001 is used as a base. Domestic consumption of avocado by
income group is given in Table 3.1.
Table 3.1
DOMESTIC CONSUMPTION OF AVOCADO BY INCOME GROUP
Income Group
<600
600-999
1000-1399
1400-1999
2000-2599
2600-3399
3400-4199
4200-5399
5400-6599
6600-8999
9000-12599
12600-16199
162000-19999
>20000
Total
No. of H.H in
the Group
14660
88154
213080
593,706
955,547
1,641,949
1,731,550
2,141,178
1,423,499
1,430,130
750,268
244,782
95,567
140615
11,464,685
Annual per HH
Consumption
(Gramme)
10
15
126
177
144
201
397
506
743
816
537
414
Total Annual
Consumption
(Tonne)
2.13
8.91
120.40
290.63
249.34
430.38
962.13
723.65
557.45
199.74
51.32
58.21
3,654.29
A glance at Table 3.1 reveals that major consumers of avocado appear to be the high and
middle income households. The data also show that the per capita annual consumption
per household is about 0.32 kg. Hence, taking the current (year 2004) number of
households which is 14.226 million, the present demand is estimated at 4,552 tonnes.
Consumption of processed avocado in the country is found to be low. Therefore of the
total present demand 90% (4097 tonnes) is assumed to be in a fresh fruit and the
remaining 10% (455 tonnes) in a processed form.
2.
Projected Demand
The consumption of avocado is influenced, among other things, by income, urbanization
and consumption habit of the population. As mentioned earlier, major consumers of the
product are the high and middle income group of population. In addition to the domestic
market there is also a potential export market in neighbouring countries. Taking the
above factors into account demand is estimated to grow by 6% per annum.
The
projected demand is shown Table 3.2.
11-5
Table 3.2
PROJECTED DEMAND FOR AVOCADO
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Projected Demand
(Tonnes)
4552
4825
5115
5422
5747
6092
6457
6844
7255
7690
8152
8641
Of the total projected demand, the market share of the envisaged project is estimated to
range from 20% to 25%. Hence, taking the projected demand of year 2010, a farm that
can produce from 1,200 to 1,500 tonnes is recommended of the total farm produce 90% is
the share of fresh fruit while the remaining 10% will be processed.
3.
Pricing and Distribution
The project will supply fresh and processed avocado to the market. Accordingly, the
price for fresh and processed avocado is set at Birr 1/kg and Birr 4/kg, respectively.
The product can get its market outlet through the existing whole sale fruits and vegetables
enterprises as well as department stores and supermarkets.
B.
1.
FARM SIZE, PLANT CAPACITY AND PRODUCTION PROGRAMME
Farm Size & Plant Capacity
The total area to be cultivated under avocado will be 50 ha. at its full capacity. About
1,500 tonnes of fresh fruit will be produced from the farm annually. The processing
plant will have a production capacity of 150 tonnes of processed avocado utilizing 10%
of the fresh fruit produced. The remaining 1,350 tonnes of fresh fruit will be sold in the
local market.
11-6
2.
Production Programme
The avocado farm reach fruition after one year from plantation. Considering the problem
in skill development and market penetation, the avocado farm is designed to begin with
50% capacity in the first year production season and will reach full capacity in the second
year. The processing plant starts operation at 75% of the rated capacity in the first year
(on the same year of fruition) and shall progressively grow to 85% in the second year,
90% in the third year reaching full (100%) capacity in the fourth year and there after. The
processing plant will have 300 working days, operating in single shift of 8 hours a day.
IV.
FARM & PLANT MATERIALS, INPUTS AND UTILITIES
A.
FARM & PLANT MATERIALS AND INPUTS
The main raw materials and inputs required for the avocado farm and processing plant are
fertilizers, chemicals, preservatives, seedlings and packing materials. Most of the raw
materials can be obtained from the local agents. The detailed raw materials requirement
and cost is shown in Table 4.1 below. The total annual cost of raw materials and inputs is
estimated at Birr 508,000.
Table 4.1
MATERIALS AND INPUTS REQUIREMENT AND COST
Sr.
No.
1
2
3
4
5
Description
Fertilizer ( tonnes)
Seedlings (No) *
Chemicals (lt)
Preservatives
Crates
Packing material (Cans & ) cartoons
Total
Qty.
15
7900
lumpsum
lumpsum
700
lumpsum
Cost ('000
Birr)
45
79
20
60
28
276
508
* The cost of seedling is incurred during the first year of the farm operation, while the others are annual
demand for the life of the project. The plant needs also 6,667 crates initially costing Birr 266,680. The
amount shown in Table 4.1 is for annual replacement (assuming 10% damage)
11-7
B.
UTILITIES
Electricity , water, fuel and lubricant are the main utilities required for the envisaged
avocado farm. The types of utilities and consumption quantity and corresponding costs
are depicted in Table 4.2 below. The total cost is estimated at Birr 1,021,084.
Table 4.2
UTILITIES REQUIREMENT AND COST
Sr.
No
1
2
3
4
Description
Fuel (lt)
Lubricant (lt) kg
Electricity (kWh)
Water (m3)
Grand Total
Qty.
(000)
11,000
1,100
12,608
Cost
('000 Birr)
3.00
15
0.474
Total Cost
('000 Birr)
33,000
16,500
59,764
20,000
2.00
40,000
149,260
V.
FARM OPERATION AND PROCESSING TECHNOLOGY AND
ENGINEERING
A.
FARM OPERATION AND PROCESSING TECHNOLOGY
1.
Agricultural Operation and Avocado Processing
a)
Land Development
Land development is the first operation of the Production process in avocado production.
It includes land surveying and design, planting site clearing and cleaning, levelling and
irrigation land, access and farm roads construction.
b)
Land Preparation
Land preparation activities like ploughing, disking, harrowing and basin formation follow
the land development. Ploughing, disking and harrowing would be carried out by tractor
mounted machineries while basin formation by casual labours.
c)
Nursery Establishment and Propagation of Seedlings
Nursery establishment is the most important operation and initial stage in avocado
planting material propagation full stop. Appropriate site selection, fencing clearing and
ploughing are among the important activities of nursery establishment. It is followed by
11-8
seed bed Preparation . Raising of seedlings, grafting and handling of seedlings are some
of the routine activities which are expected to be undertaken in the nursery.
d)
Pre-Harvest Management
Pre- Harvest management starts with transplanting of sexually or asexually propagated
seedlings of avocado from nursery to the main planting site. Cultivation for weed control
and soil fertility improvement, training and pruning seedlings, irrigation water
application, fertilization and insect pest and disease control are among the major pre harvest management in avocado production.
e)
Post - Harvest Management
In avocado production, Post harvest management includes picking, cleaning, grading,
transporting and marketing. Transporting will be handled with trucks equipped with
refrigerator.
f)
Avocado Processing
Select ripe avocado and wash them with a brush washing machine. The remaining
impurities are removed by an air injection washing machine. It then passes to the sorting
line where damaged fruit is eliminated. Then scalding and peeling process are continued.
The peeled fruit is stored in hold tank. The fruit is mixed with preservatives and flavours
such as sugar, acid, pectins and vinegar. Filling in cans will continue by controlling the
weight under vacuum so as to removed part of the air in the head space. Then it is sealed,
treated with heat, marked, and packed in cartoon for dispatch.
2.
Source Of Technology
The machinery and equipment required by the farm can be obtained from Riesengineering and Nazareth Tractor Assembly plant, whereas planting materials like
fertilizers, chemicals & seedlings, etc. could be obtained from a number of governmental
and non-governmental organizations such as horticulture development required
enterprises, Agricultural In put Supply Enterprise, etc. The machinery and equipment
for the processing of avocado will be obtained from the following suppliers.
1)
Jwala Engineering Company
6, MADHU INDL. EST., OFF 11B PATEL ROAD
GORE GAONE (E)
Mumbai - 400063, Maharashtrd, India
Phone: 91-22-56902548/56903038
Fax: 91-22-26862622
11-9
2)
BBC Technologies Ltd
397 Jary Road
Hamiltonne
Phone: 6478236927
Fax: 6478236025
B.
ENGINEERING
1.
Farm & Plant Machinery and Equipment
The machinery and equipment required by the envisaged avocado farm and processing
project are listed in Table 5.1 below. The total cost of machinery and equipment is
estimated at Birr 4.4 million, out of this Birr 4.1 million will be required in foreign
currency.
Table 5.1
LIST OF FARM & PLANT MACHINERY AND
EQUIPMENT
Sr.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Description
Qty.
Tractor 110 Hp -125 HP
Disk plough
Disk Harrow of set type
Trailers
Sprayers
Generator
Workshop equipment ( set)
Tools (set)
Hand tools / farm implements
Tanks
Conveyor
Balances
Seamer
Dryer
Washing machine
Vacuum pump
Boiler
1
1
1
1
2
1
1
1
2
1
2
2
1
1
1
1
11-10
2.
Land, Building And Civil Works
The land development cost for 50 ha. of irrigable farm and irrigation infrastructure
construction is estimated to be Birr 320,000 and cost for access roads construction in the
farm compound will be Birr 125,000. The total area required for avocado production and
processing plant including open area for future expansion and recreation places, stores,
offices canteens, workshop, etc. is estimated to be 750m2 and the total cost of buildings,
at the rate of Birr 1200 per meter square, is expected to be Birr 0.9 million. Rural land
lease cost in BGRS ranges from Birr 15 to 30 per ha.. Accordingly at the rate of Birr 30
per hectare and for 70 years of land holding, the total cost of land lease is estimated at
Birr 105,000. The total cost of land, land preparation and development, buildings and
civil works, assuming the total land lease cost will be paid in advance, is estimated at Birr
620,000.
3
Proposed Location
The location of the proposed avocado farm and processing plant will be in Metekel zone
of the region, where there is abundant land and water for irrigation.
VI.
MANPOWER AND TRAINING REQUIREMENT
A.
MANPWER REQUIREMENT
The manpower required for the envisaged project is 19 permanent employees as shown in
Table 6.1. According to Table 6.1, the total cost for permanent and casual labour will be
Birr 280,000.
11-11
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST
Sr.
No
1
2.
3
4
5
6
7
8
9
10
12
14
16
17
18
B.
Req.
No.
Description
Manager
Secretary/ Cashier
Horticulturist
Irrigation Engineer
Warehouse Specialist
Accountant
Purchaser/Salesperson
Processing Plant Higher Technician
Processing plant Ass, Technician
Tractor Operator
Mechanic
Drivers
Generator Operator
Store Keeper
Guards
Sub - total
Employee Benfits
(25%)
Total
Casual labour
Grand Total
1
1
1
1
1
1
1
1
1
2
1
2
1
1
3
19
-
Monthly
Salary
(Birr)
Yearly
Salary
('000 Birr)
2250
700
2000
2000
1850
700
800
1000
600
800
500
500
300
500
600
27
8.4
24
24
22.2
8.4
9.6
12.0
7.2
9.6
6.0
12.0
3.6
6.00
7.2
187.2
46.8
-
234
46
280
TRAINING REQUIREMENT
Training will be given to the processing plant technicians by the supplier of the
processing machine during erection and commissioning period for about two weeks. The
training cost is estimated to be Birr 50,000.
VII.
FINANCIAL ANALYSIS
The financial analysis of Avocado Farm & Agro-processing project is based on the data
presented in the previous chapters and the following assumptions:Construction period
Source of finance
1 years
30 % equity
11-12
Tax holidays
Bank interest
Discounted cashflow
Repair and maintenance
Accounts receivable
Raw material, local
Work in progress
Finished products (processed)
Fresh
Cash in hand
Accounts payable
A.
70 % loan
3 years
7.5 %
8.5 %
3 % of the total plant and machinery
30 days
30 days
1 day
30 days
1 day
5 days
30 days
TOTAL INITIAL INVESTMENT COST
The total initial investment cost of the project including working capital is estimated at
6.71 million, of which 65.92 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1
Table 7.1
INITIAL INVESTMENT COST
Sr. No.
1
2.
3.
4.
5.
6.
7
8
*
Cost Items
Land lease value
Site preparation and developed
Building and Civil Work
Farm & Plant Machinery and
Equipment
Office Furniture and Equipment
Vehicle
Pre-farming Expenditure*
Working Capital
Total investment cost
Foreign share
Total ('000 BIRR)
105
445
400
4,400
50
250
378.6
188.18
6,716.82
65.92
N.B Pre-farming expenditure includes interest during construction (Birr 343,630 thousand),
training (Birr 50 thousand), and ( Birr 5thousand) costs of registration, licensing and
formation of the company including legal fees, commissioning expenses, etc.
11-13
B.
OPERATION & PRODUCTION COST
The annual operation & production cost at full operation capacity is estimated at Birr
1.75 million (see Table 7.2). The material and utility cost accounts for 37.39 per cent
while repair and maintenance take 4.32 per cent of the production cost.
Table 7.2
ANNUAL OPERATION & PRODUCTION COST ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Farm & Factory overheads
Administration Cost
Total Operating Costs
Depreciation
Cost of Finance
Total Production Cost
C.
FINANCIAL EVALUATION
1.
Profitability
Cost
508
149.26
76
180
15.8
12
941.06
574
238.9
1,754.46
%
28.9
8.49
4.32
10.24
0.90
0.68
53.53
32.88
13.59
100
According to the projected income statement, the project will start generating profit in the
3rd year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the lifetime of the project.
The income statement and the other indicators of profitability show that the project is
viable.
2.
Break-even Analysis
The break-even point of the project including cost of finance when it starts to operates at
full capacity ( year 4 ) is estimated by using income statement projection.
BE =
3.
Fixed Cost
= 38 %
Sales – Variable cost
Pay-Back Period
The investment cost and income statement projection are used to project the pay-back
period. The project's initial investment will be fully recovered within 7 years.
11-14
4.
Internal Rate of Return and Net Present Value
Based on the cash flow statement, the calculated IRR of the project is 13% and the net
present value at 8.5% discount rate is Birr 2.29 million.
D.
ECONOMIC BENEFITS
The project can create employment for 19 persons. In addition to supply of the domestic
needs, the project will generate Birr 0.4 million per annum in terms of tax revenue when
it starts to operate at full capacity. Moreover, the Regional Government can collect
employment, income tax and sales tax revenue. The establishment of such factory will
have a foreign exchange saving effect to the country by substituting the current imports.